Importing to Brazil: Import by Order and Import on Behalf of Third Party

Many of our clients that seek advice regarding international contracts in Brazil are usually completely lost about import procedures in Brazil. 

I have been noticing that the lack of understanding about Brazilian import modalities can drive foreigners towards bad or inneficient deals. 


Thus,  we bring  a little explanation about import modalities. We will focus on indirect imports. That is, import procedures in which the importing company does not perform all import procedures, but outsources them to specialized companies. 

Please not that, for the procedures below to work, a Brazilian importer must hire a Trading Company. So, either the investor must have a subsidiary/controlled company in Brazil, or the final client must hire a Trading Company in order to import the goods from the foreign seller.  

There are two forms of indirect importation: import by order and import on the behalf of third party. 

The major problem surrounding the choice of them is the lack of accurate information regarding the tax burden and the peculiarities of each procedure, which we will try to clarify below.

Import by order

In this modality, a Trading Company will buy and import the goods with its own financial resources and commits to resell them to the buyer (the real importer), due to a contract previously concluded.

The taxes incident on the import operation, which will be fully funded by the Trading are Importation tax (II), ICMS, PIS / COFINS, IPI and IOF, just like the ones in a direct import.

For such services, the Trading can embed its fees in the sales invoice or opt for the commission system, always defining such option previously on the contract.

The catch is: the Trading Company must resell the goods to the final importer. When this sale is made, VAT taxes will apply, just like in any internal sale in Brazil. The operation becomes more expensive, as a result.

It is important to highlight that even if the buyer delegates all customs clearance work to the Trading Company, the buyer is still required to obtain Brazilian Import Licenses (SISCOMEXand RADAR).

Import on behalf of third parties

In this mode of importation, the buyer is the real owner and importer of the goods  and the Trading is a mere intermediary that assists in the bureaucratic process. There must be a formal agreement between Trading Company and Importer.  

The buyer shall pay the  supplier and the import taxes directly.

Import taxes apply as usual. 

After import taxes are paid and customs are cleared, the Trading company must issue a "nota fiscal de transferência" (a transportation document, required by the Brazilian Revenue Service) and ship the goods to the final importer.

It is precisely no this that the Import on behalf of third party differs from Import by order. Since it is a mere remittance, this operation does not constitute a taxable event for PIS/COFINS (one of the Brazilian VAT).  Thus, the taxation levied on the transference of the  goods from the Trading to the importer is lower in this modality than in the import by order.

Moreover, in this kind of import, the Trading’s services are paid by the buyer through  a service invoice (in the previous modality, the Trading would add an "overhead" to the merchandise cost).

With respect to registration formalities, the buyer is also obliged to obtain the RADAR/SISCOMEX.

COMPARISON

In conclusion, each of the methods has its pros and cons. If the buyer does not want to bear the risk of import and do not want to spend its capital since the beginning of the importation process, he should opt for import by order, since such burden falls on the Trading.

 In contrast, in a different analysis, it is more profitable to use the import on behalf of third party, since the VAT charged in the  transfer of the goods from the Trading Company to the final buyer is considerably lower.

See also:

Step by step for the Brazilian Import License (RADAR/SISCOMEX)

Exemption of import tax for machinery - Import permits for electronics and drugs 

Taxation of software importation by end users in Brazil 

Business Basics in Brazil

How to calculate Brazilian import costs